Sunday, 8 December 2019

Unit 6: Law of Negotiable Instruments

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                                                   Unit 6: Law of Negotiable Instruments




The Negotiable Instrument Act, 1881 came into force on 1st March 1881.

It extends to the whole of India except the State of Jammu & Kashmir.


The term Negotiable Instrument consists of two parts viz.

; Negotiable and Instrument.


The word ‘negotiable’ means transferable by delivery and the word ‘instrument ‘ mean written documents by which a right is created in favour of some person.


It means an instrument possessing the quality of Negotiability is entitled to be called negotiable instrument.


As per the instructions issued by the Reserve Bank of India (9-9-1992) it would be safer for the drawer to cross a cheque “not negotiable” with the words “account payee” added to it.


The courts of law have held that “an account payee” crossing is a direction to the collecting banker as to how the proceeds are to be applied after receipt.


The banker can disregard the direction only at his own risk and responsibility.

Bill of Exchange: A bill of exchange is an instrument in writing containing an unconditional to the order of a certain person or to the bearer of the instrument.

Cheque: A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable.

Endorser: The person who endorses the note in favour of another person.

Endorsee: The person in whose favour the note is negotiated by endorsement Holder: It is either the original payee or any other person in whose favour the note has been endorsed.

Negotiable Instrument: Means a promissory note, bill of exchange or cheque payable either to order or to bearer.

Payee: The person to whom the amount of the note is payable.

Promissory Note: A promissory note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.

Time bills: Also called as usance bills, are bills payable at a fixed period after date or sight of the bills.













The word ‘company’ denotes an association of person to achieve some common objective.

In Legal terminology, a company when incorporate becomes a legal person, and consequently, has certain distinguishing features.


The most important feature is that a company is an entity district from its members and is an artificial person.


A creditor of accompany cannot file a suit against the member of the company for recovering the amount due.

In a way, a veil is thrown around the members.


This is known as the veil of corporate personality.

But there are certain situations when the veil may be lifted and the company be identified with the members of the company.


The Companies Act 1968 has made a provision for the registration of different types of companies.

But most common of these are private companies and public companies.


The whole process of formation of a company may be divided into four stages; namely, (i) promotion, (ii) registration, (iii) flotation, and (iv) commencement of business.


The certificate of incorporation, issued by the registrar, signifies that a company with its own entity distinct from the members who constitute has come into existence.


A public company has to obtain another certificate before it can commence business.

This is known as certificate to commence business.


Foreign Company is a company incorporated in a country outside India and has a place of business in India.

Companies Act, 1956: The Act contains the mechanism regarding organisational, financial, and managerial and all the relevant aspects of a company.

Private Company: A private company can be formed by merely two persons by subscribing their names to the Memorandum of Association.

Public Company: A public company may or may not invite public to subscribe to its share capital.

135 Registered Company: A company brought into existence by registration of certain documents under the Companies Act, 1956 is called Registered Company.

Statutory Company: A company which is created by a special Act of the Legislature is called a Statutory Company.

Unlimited Company: An unlimited company is a company not having any limit on the liability of its members.



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